PUBLICATIONS  OF 

THE  NATIONAL  MUNICIPAL  LEAGUE 

PAMPHLET  NO.  13 

Municipal  Taxation 


READ  AT  THE  CHICAGO  MEETING  OF  THE  NATIONAL 
MUNICIPAL  LEAGUE,  BY 

LAWSON  PURDY 

NEW  YORK 

SECRETARY  NEW  YORK  TAX  REFORM  ASSOCIATION 


OFFICERS 


Honorary  President . JAMES  C.  CARTER,  New  York 

President . CHARLES  J.  BONAPARTE,  Baltimore 

First  Vice-President  .  .  CHARLES  RICHARDSON,  Philadelphia 

Second  Vice-President . SAMUEL  B.  CAPEN,  Boston 

Third  Vice-President  .  .  .  THOMAS  N.  STRONG,  Portland,  Ore. 

Fourth  Vice-President  .  .  .  H.  DICKSON  BRUNS,  New  Orleans 

Fifth  Vice-President . EDMUND  J.  JAMES,  Chicago 

Secretary  .  .  CLINTON  ROGERS  WOODRUFF,  Philadelphia 
Treasurer . GEORGE  BURNHAM,  Jr.,  Philadelphia 


Executive  Committee 

Horace  E.  Deming,  New  York,  Chairman 


Albert  Bushnell  Hart.  .  .  Cambridge 

H.  N.  Wheeler . Cambridge 

Dudley  Tibbitts  ....  Troy,  N.  Y. 
Robert  W.  DeFokest  .  .  .  New  York 

George  Haven  Putnam  .  .  New  York 

William  H.  Baldwin,  Jr.  .  New  York 
Dr.  Charles  B.  Spahr  .  .  .  New  York 

J.  Hampden  Dougherty  .  .  .  Brooklyn 

A,  Augustus  Healy  ....  Brooklyn 
William  G.  Low.  .....  Brooklyn 
H  arry  A.  Garfield  .  .  .  Princeton,  N.  J. 

Hector  McIntosh  .  .  .  Philadelphia 

Harry  B  French  ....  Philadelphia 
J .  Horace  McFarland  .  .  .  Harrisburg 


George  W.  Guthrie  ...  .  Pittsburg 

Oliver  McClintock  ....  Pittsburg 
William  P.  Bancroft  .  .  .  Wilmington 

Elliot  H.  Pendleton  .  .  .  Cincinnati 

Harry  T.  Atkins . Cincinnati 

John  Davis . Detroit 

L.  E  Holden . Cleveland 

Mattoon  M.  Curtis . Cleveland 

Frank  H.  Scott .  Chicago 

John  A.  Butler . Milwaukee 

Charles  Nagel .  St.  Louis 

Henry  L.  McCune  .  .  .  Kansas  City 

J.  Pemberton  Baldwin  .  .  New  Orleans 

And  the  Officers 


Office A^the  Secretary  : 

121  South  Broad  Street,  Philadelphia 

■  1904 


Municipal  Taxation 

By  LAWSON  PURDY,  New  York 

By  statute  the  general  property  tax  prevails  throughout  the 
United  States,  with  very  few  exceptions,  and  local  revenue  is 
supposed  to  be  raised  by  a  uniform  tax  equally  imposed  on  all 
property.  This  system  is  based  on  the  theory  that  in  order  to 
be  equal,  taxation  must  be  equally  imposed  on  everything  that 
has  value.  To-day  the  theory  is  completely  discredited.  Hardly 
a  voice  is  raised  in  its  favor,  and  the  so-called  system  is  a  wreck, 
only  held  together  at  all  by  constitutional  restrictions  and  inherr 
ited  prejudices.  The  first  problem  that  confronts  us  is  how  to 
give  the  general  property  tax  a  decent  burial. 

The  constitutions  of  at  least  twenty-four  states  contain 
limitations  upon  the  power  of  the  legislature  which  render  impos¬ 
sible  the  adoption  of  any  sensible  system  of 
Constitutional  taxation.  The  constitution  of  Ohio  is  as  bad  as 
Limitations.  the  worst,  and  contains  a  typical  restriction: — 

“Taxes  must  be  equal  and  uniform,  and  imposed 
on  all  property  both  real  and  personal.”  The  legislatures  of 
states  whose  constitutions  contain  such  restrictions  seem  afraid 
to  abolish  the  restrictions,  and  have  proposed  to  the  people  at 
frequent  intervals  ill-devised  amendments  providing  for  an 
increase  of  power  to  the  legislature.  Such  an  amendment  was 
proposed  to  the  people  of  Minnesota  a  year  ago,  providing  at 
great  length  that  the  legislature  might  impose  an  income  tax  and 
might  do  various  other  things.  The  people  very  properly 
rejected  it.  What  is  needed  is  an  elimination  from  all  constitu¬ 
tions  of  any  restraints  upon  the  power  of  the  legislatures  to 
deal  with  taxation.  The  constitution  of  the  United  States  pro¬ 
tects  our  fundamental  rights,  and  protects  them  adequately. 
Why  the  people  of  a  state  in  which  the  laws  are  about  as  bad  as 
they  can  be  should  be  afraid  of  freedom  to  change  for  the 
better  is  amazing.  The  constitutions  of  New  York,  Connecticut 

(i) 


2 


MUNICIPAL  TAXATION. 


f^loirv 


and  Massachusetts  are  practically  silent  on  the  subject  of  taxa¬ 
tion.  And  in  some  respects  those  states  are  far  in  advance  of 
states  which  have  restrictions.  The  only  danger  to  which  they 
are  subjected  by  the  absence  of  constitutional  restrictions  is 
the  danger  of  having  legislation  imposed  on  them  like  that 
of  Ohio  and  many  of  the  western  states.  The  first  step  for¬ 
ward  in  all  the  states  of  the  Union  but  eight  should  be  an 
amendment  to  the  constitution  eliminating  all  matter  relating  to 
•taxation. 

Local  taxation  is  complicated  by  state  taxation,  chiefly 
because  in  most  of  the  states  a  tax  is  imposed  for  state  purposes 

upon  property  as  assessed  by  local  officials. 
Local  Taxation  This  leads  to  undervaluation  by  local  assessors 
Complicated  by  so  as  to  reduce  their  share  of  the  state  revenue. 
State  Taxation.  Several  states  have  succeeded  in  providing  and 

others  are  attempting  to  provide  sufficient 
revenue  for  the  state  by  special  taxes  laid  on  selected  subjects  at 
unvarying  rates.  As  a  sole  reliance  for  state  revenue  this  is  a 
very  bad  substitute,  because  it  lacks  elasticity.  Sometimes  the 
revenue  is  excessive  and  there  is  a  mad  scramble  for  appropria¬ 
tions  which  it  is  difficult  to  cut  down  when  hard  times  reduce  the 
state’s  income.  Sometimes  the  revenue  is  insufficient  and  the 
legislatures  strive  to  invent  new  taxes,  generally  bad  ones,  and 
disturb  business  conditions. 

At  least  part  of  the  state  revenue  should  always  be  raised  by 
an  elastic  form  of  taxation  which  can  be  increased  or  diminished 

in  accordance  with  the  need  for  revenue,  and 
Apportionment  whose  incidence  will  be  felt  by  the  taxpayers, 
of  State  Taxes.  Such  an  elastic  system  was  proposed  four  years 

ago  by  the  New  York  Tax  Reform  Association, 
and  endorsed  by  the  New  York  Chamber  of  Commerce  and  other 
bodies.  It  provides  for  the  apportionment  of  so  much  state 
revenue  as  may  be  required  in  excess  of  that  derived  from  special 
taxes,  to  the  several  counties  of  the  state  in  proportion  to  the 
revenue  raised  for  all  purposes  by  and  within  each  county.  By 
this  plan,  if  the  total  local  revenues  amount  to  one  hundred 
million  dollars,  and  the  local  revenue  of  a  certain  county  amounts 
to  one  million  dollars,  that  county  would  contribute  one  per  cent. 


£3VhtYc0r^>Vf? 


LAWSON  PURDY. 


3 


of  whatever  amount  the  state  may  need.  This  plan  was  adopted 
by  the  State  of  Oregon,  by  a  somewhat  imperfect  statute,  in  1901. 
The  Oregon  law  is  unjust  in  that  the  apportionment  is  based  upon 
county  revenue,  and  not  upon  the  revenue  of  each  county  and  all 
the  taxing  districts  within  it.  The  result  is  that  in  Oregon,  as  I 
predicted,  the  rich  counties  will  pay  less  than  before,  and  the 
poor  counties  more.  As  a  matter  of  justice  the  exact  reverse 
should  have  been  the  case.  Under  the  usual  plan  of  raising  state 
revenue  by  tax  upon  all  forms  of  property,  the  poor  counties  pay 
more  than  their  share,  because  in  poor  counties  the  personal 
property  is  generally  more  fully  assessed,  and  improvements  on 
land  form  a  larger  proportion  of  the  total  value  of  real  estate  than 
in  populous  cities.  This  increases  the  burden  of  taxation  upon 
industry,  and  to  that  extent  relieves  monopoly.  If  the  appor¬ 
tionment  is  based  upon  total  local  revenue,  cities  will  pay  more 
than  they  do  now,  and  rural  districts  will  pay  less,  for  in  cities 
wealth  per  capita  is  greater,  and  the  tax  rate  is  usually  higher. 
A  statistical  study  merely  proves  what  anyone  familiar  with 
economic  law  would  naturally  deduce — that  an  apportionment 
based  on  revenue  is  very  nearly  equivalent  to  apportionment 
based  on  monopoly  values.  Even  if  this  plan  of  apportionment 
of  state  revenue  were  not  more  just,  it  would  still  be  a  vast 
improvement,  because  of  the  necessity  of  divorcing  state  from 
local  revenue,  and  the  evils  attendant  upon  raising  all  state 
revenue  by  inelastic  taxes.  In  any  event  the  amount  to  be 
raised  is  small ;  much  too  small  to  cause  any  undue  economy  in 
local  expenditures.  Indeed  the  tendency  to  economical  admin¬ 
istration  of  local  affairs  which  would  result  from  the  apportion¬ 
ment  of  state  taxes  on  the  basis  of  local  revenue  is  a  desirable 
feature  of  this  method  of  apportioning  the  burden  of  supporting 
the  state.  In  the  State  of  New  York  all  the  expenses  of  the 
state  are  only  about  15  per  cent,  as  much  as  the  total  expense  of 
supporting  local  governments.  There  are  very  few  states  in 
which  more  than  one  dollar  in  seven  is  required  for  state  pur¬ 
poses,  and  in  many  states  a  large  part  of  the  state  revenue  is  now 
raised  by  special  taxes. 

When  constitutional  limitations  are  removed  and  state 
revenue  is  provided  without  the  imposition  of  a  state  tax  on 


4 


MUNICIPAL  TAXATION. 


property  as  assessed  by  local  officials,  the  way 
Reform  in  is  clear  for  needed  changes  in  the  methods  of 
Local  Taxation  raising  local  revenue. 

The  chief  source  of  local  revenue  is  now  and 
always  will  be  the  taxation  of  real  estate.  Real  estate  now  pays 
from  75  per  cent,  to  99  per  cent,  of  all  local  revenue.  On  this 
account  alone  it  is  of  the  utmost  importance  that  the  assessment 
of  real  estate  should  be  as  nearly  equitable  as  human  machinery 
can  make  it.  The  prevailing  practice  of  disobedience  to  the 
law,  which  requires  assessment  at  full  value,  or  market  value,  or 
cash  value,  renders  an  equitable  assessment  an  impossibility. 
After  a  long  struggle  the  policy  has  been  adopted  in  the  City  of 
New  York  of  assessing  real  estate  as  the  law  directs,  and  in  spite 
of  an  insufficient  appropriation  and  a  very  inadequate  number 
of  assessors,  the  improvement  effected  in  two  years  has  been 

tremendous.  At  first  there  was  some  opposi- 
Real  Estate  tion,  which  came  chiefly  from  those  who,  as  one 
Taxation.  of  the  tax  commissioners  said,  were  afraid  that 

justice  would  be  done ;  but  now  the  best  informed 
real  estate  men  in  the  city  are  almost  unanimously  agreed  that 
the  policy  is  sound,  and  that  the  assessments  on  the  average  are 
much  more  equitable  than  in  the  past.  In  the  New  York  Herald, 
of  April  6th,  Mr.  D.  Phoenix  Ingraham  is  reported  to  have  said: — 
“If  it  can  be  carried  out  fairly  and  accurately  full  valuation 
assessment  of  real  property  in  New  York  City  is  the  best  thing 
that  could  be  devised.  It  will  do  away  with  the  possibility  of 
favoritism  and  suspicion  of  dishonesty.  Considering  the  salaries 
paid  the  assessors  I  am  almost  amazed  at  the  correctness  of  the 
last  assessment.  It  was  generally  fair  and  accurate,  and  the 
rate  of  taxation  kept  the  total  burden  to  a  minimum.” 

Mr.  John  N.  Golding  said: — “I  believe  the  law  states  that 
property  shall  be  assessed  for  its  full  valuation.  I  believe  in 
carrying  out  the  law.  I  think  this  system  is  preferable  to  the 
old  system,  where  it  was  supposed  that  the  assessment  was  sixty 
per  cent,  of  the  value  of  the  property.  The  old  way  of  assessing 
property  seemed  to  me  to  be  ridiculous.  You  would  find  some 
property  assessed  for  eighty  per  cent,  of  what  it  would  bring  in 
the  market  and  others  about  thirty  per  cent.,  but  establishing 


LAWSON  PURDY. 


5 


what  the  assessors  presume  to  be  the  full  market  value  is  bene¬ 
ficial  to  all  parties  concerned.” 

The  criticisms  of  real  estate  men  reported  in  the  same  paper 
really  relate  to  details,  and  not  to  the  principle.  They  complain 
that  there  are  not  enough  assessors ;  that  they  are  not  sufficiently 
paid;  and  that  the  work  cannot,  under  these  circumstances,  be 
accurately  performed.  All  this  is  true,  and  the  next  step  in  the 
City  of  New  York  must  be  to  secure  a  much  larger  appropria¬ 
tion  for  the  Tax  Department  and  increase  the  number  of  assessors 
and  the  salaries  of  the  chief  deputies. 

One  year  ago  a  further  improvement  was  adopted  in  the 
City  of  New  York  by  requiring  the  assessors  to  state  separately 
the  value  of  each  parcel  of  land  exclusive  of  improvements. 
This  has  been  in  practice  for  many  years  in  Massachusetts  and  a 
few  other  states.  Our  New  York  plan  only  differs  in  this,  that 
while  in  other  states  the  land  value  is  separately  stated,  the 
improvements  are  also  separately  stated.  In  the  City  of  New 
York  we  have  only  two  columns  of  the  record  for  values,  in  which 
are  set  down  the  land  value  and  the  total  real  estate  value. 

This  is  an  economy  of  clerical  labor,  and,  we 
The  Separation  believe,  positively  exerts  an  influence  on  the 
of  Land  and  assessors  to  keep  them  from  over-valuing  build- 
Building  Values  ings.  In  strict  logic  there  is,  of  course,  no 

difference  between  the  requirement  to  state  the 
value  of  land,  of  the  improvements,  and  the  total,  and  to  state 
only  the  value  of  the  land  and  the  total ;  but  when  the  assessor 
is  confronted  with  a  building,  producing  a  revenue,  which  would 
cost  thousands  of  dollars  to  reproduce,  he  is  reluctant  to  state 
directly  that  the  building  has  no  value,  even  when,  as  a  matter 
of  fact,  he  knows  and  everyone  acquainted  with  the  property 
knows  that  the  building  adds  nothing  whatever  to  the  selling 
value  of  the  property,  because  it  is  no  longer  suited  to  the  site. 
Even  under  our  New  York  plan  of  separately  stating  the  land 
value  but  not  the  improvement  value,  it  is  evident  that  buildings 
have  been  over-valued  in  proportion  to  the  land.  A  comparison 
with  results  in  Boston,  where  assessments  are  well  made,  leads 
to  the  belief,  however,  that  buildings  are  less  over-valued  in  the 
city  of  New  York  than  they  are  in  Boston. 


6 


MUNICIPAL  TAXATION. 


The  requirement  of  the  separate  statement  of  land  value  has 
met  with  cordial  approval  by  real  estate  experts.  Mr.  Golding, 
whom  I  have  already  quoted,  said:  “I  think  a  separation  of  the 
land  and  building  values  a  most  excellent  one.  It  enables  the 
owners  to  see  how  the  assessors  arrive  at  their  conclusions.”  Mr. 
Franklin  Lord,  of  Daniel  Birdsall  &  Co.,  is  recorded  as  follows: 
“The  plan  of  assessing  the  improvements  separately  seems  to  me 
to  be  absolutely  necessary  for  the  proper  working  of  the  new 
method,  because  without  it  we  would  still  be  unable  to  find  out 
what  part  of  an  assessment  applied  to  the  land,  and  it  would 
still  be  possible  to  favor  a  property  by  asserting  that  the  inequal¬ 
ity  was  due  to  the  value  of  the  improvements.  If  the  value  of  the 
improvements  was  not  stated,  no  one  could  say  what  comparison 
might  be  made  between  one  parcel  of  land  and  another.  I 
believe  as  soon  as  you  get  used  to  the  new  order  of  things  there 
will  be  very  few  found  who  would  be  willing  to  return  to  the  old 
chaotic  way  where  everybody  talked  in  a  hazy  way  about  a  forty 
per  cent,  basis  and  a  sixty  per  cent,  basis ;  and  where  commissioners 
when  pushed  for  an  answer  on  the  subject  would  reply  that  they 
recognized  no  comparison,  but  simply  assessed  the  property  for 
what  they  thought  it  ought  to  be  assessed.” 

A  still  further  improvement  was  effected  by  an  amendment 
to  the  city  charter  which  requires  the  publication  annually  of  the 

complete  record  of  real  estate  assessments.  The 
Publication  of  publication  will  be  made  by  sections  into  which 
Real  Estate  the  city  is  divided  for  the  purposes  of  assessment. 
Assessments.  Each  section  contains  from  ten  to  thirty  thou¬ 
sand  parcels,  and  will  be  published  separately; 
and  persons  interested  can  buy,  for  a  few  cents,  the  assessment 
roll  of  one  or  more  sections,  or  of  the  whole  city.  This  will 
render  comparisons  very  easy,  and  disseminate  a  knowledge  of 
assessed  values  which  will  tend  toward  constant  improvement  in 
the  accuracy  of  assessments. 

The  removal  of  constitutional  restrictions  and  the  abolition 
of  a  state  tax  on  all  property  locally  assessed  wdll  make  possible  a 

reform  without  which  progress  is  well-nigh  impos- 
Local  Option.  sible.  You  all  know,  and  all  students  of  the 

subject  know,  that  in  every  state  we  are  attempt- 


LAWSON  PURDY. 


7 


ing  to  tax  property  which  ought  never  to  be  taxed  at  all.  On 
this  subject  city  sentiment  is  naturally  far  in  advance  of  country 
sentiment;  yet  country  sentiment  rules  our  legislatures.  So 
long  as  there  must  be  one  rule  for  the  whole  State,  progress  can 
only  be  made  at  the  pace  of  the  slowest.  With  local  option 
progressive  communities  will  furnish  object  lessons  to  the  unpro¬ 
gressive,  and  progress  will  be  rapid. 

The  few  adherents  of  the  general  property  tax  theory  always 
excuse  a  failure  of  the  law  on  the  ground  that  it  is  not  sufficiently 

stringent.  They  want  every  man  to  be  required 
Personal  to  give  a  statement  of  all  his  property  under 

Property  Tax.  oath,  and  in  states  where  there  is  a  severe  list¬ 

ing  system,  complaint  is  made  of  the  incompe¬ 
tence,  or  worse,  of  those  charged  with  enforcing  the  law.  They 
are  generally  very  ignorant  of  the  lessons  of  experience,  or  are  so 
wedded  to  a  theory  that  they  refuse  to  accept  any  experience  as 
a  guide  to  action. 

In  Ohio  there  is  the  most  efficient  and  minute  scheme  of 
assessing  all  classes  of  property  which  has  been  devised  in  any 
state.  Every  citizen  is  bound  under  oath  to  make  a  complete 
return  of  his  property  in  detail.  If  he  declines  to  make  the  state¬ 
ment  required  by  law,  a  penalty  of  fifty  per  cent,  is  added.  In 
addition  to  this  they  have  what  is  called  the  tax  inquisitor  law, 
which  gives  the  county  commissioners  power  to  make  contracts 
with  persons  who  may  give  information  which  will  result  in 
personal  property  being  placed  on  the  assessment  roll.  Under 
the  act  passed  in  1885  applicable  to  Hamilton  and  Cuyahoga 
counties,  the  amount  authorized  to  be  paid  to  informers  was  25 
per  cent.;  and  under  the  general  act  passed  in  1888  applicable 
to  the  entire  State,  the  amount  authorized  to  be  paid  was  20  per 
cent,  of  the  amount  recovered.  The  efforts  of  the  tax  inquisitors 
are  principally  devoted  to  ascertaining  what  foreign  stocks  and 
bonds  are  improperly  withheld  from  the  returns.  The  result  of 
the  severe  listing  law  and  the  tax  inquisitor  law  has  been  the 
steady  shrinkage  in  the  assessed  value  of  personal  property. 

In  1893  the  Hon.  William  McKinley,  then  governor  of  the 
state,  appointed  a  tax  commission  of  four  members,  two  being 
Republicans  and  two  Democrats,  who  when  appointed  expressed 


8 


MUNICIPAL  TAXATION. 


themselves  as  in  favor  of  continuing  the  tax  upon  personal  prop¬ 
erty.  As  a  result  of  their  investigations  they  said  in  their  report : 

“The  system  as  it  is  actually  administered  results  in  debauch¬ 
ing  the  moral  sense.  It  is  a  school  of  perjury.  It  sends  large 
amounts  of  property  into  hiding.  It  drives  capital  in  large 
quantities  from  the  state.  Worst  of  all,  it  imposes  unjust 
burdens  upon  various  classes  in  the  community ;  upon  the  farmer 
in  the  country,  all  of  whose  property  is  taxed  because  it  is  tangi¬ 
ble;  upon  the  man  who  is  scrupulously  honest,  and  upon  the 
guardian  and  executor  and  trustee,  whose  accounts  are  matters 
of  public  record.” 

The  Hon.  E.  A.  Angell,  who  was  a  member  of  the  Ohio 
State  Tax  Commission,  in  an  article  published  in  The  Independ¬ 
ent  of  February,  1898,  said: 

“Let  us  compare  the  returns  of  intangible  property  in 
Hamilton  county  thirty  years  ago  with  the  corresponding  returns 
at  the  present  time: 


1866  .  $17,460,477 

1867  .  17,199,669 

1868  .  15,455,611 


The  corresponding  figures  for  the  present  time  are  as  follows : 


1894  .  $5,722,789 

1895  .  6,036,935 

1896  .  5>389>35° 


“The  amount  of  money  returned  in  Hamilton  county  in  1866 
was  $6,778,883,  while  in  1896  it  was  $1,097,283.  The  amount  of 
money  on  deposit  in  Cleveland  banks  in  1896  is  about  $70,000,000. 
and  of  this  there  was  returned  for  taxation  in  1896  $1,741,129. 
It  must  be  borne  in  mind  that  the  population  and  wealth  of  these 
cities  have  marvellously  increased  within  this  period.  Cincinnati 
was  a  city  of  about  160,000  in  i860 ;  it  has  now  more  than  400,000. 
Its  growth  in  wealth  is  more  striking  than  the  growth  in  popula¬ 
tion.  So  too  of  Cleveland.  Any  discussion  would  be  inadequate 
which  did  not  take  these  facts  into  consideration.  There  are  on 
deposit  in  the  banks  throughout  the  state  about  $190,000,000; 
of  this  $135,000,000  or  $140,000,000  are  in  the  five  city  counties. 
These  city  counties  return  for  taxation  about  $5,000,000  in 


LAWSON  PURDY. 


9 


money,  while  the  remainder  of  the  state  returns  $29,000,000  out  of 
perhaps  $60,000,000.  So  of  credits  and  stocks  and  bonds.  The 
whole  amount  of  stocks  and  bonds  returned  in  the  whole  state 
is  but  $7,000,000.  Thirty  years  ago  it  was  over  $12,000,000. 
It  is  evident  at  once,  therefore,  that  the  informer  scheme  does 
not  make  the  general  property  tax  effective.  It  has  utterly 
broken  down  in  Ohio  as  elsewhere.  The  merest  bagatelle  is 
reached  outside  of  visible,  tangible  property.” 

In  view  of  these  facts,  when  anyone  asks  how  personal 
property  can  honestly  be  taxed,  I  am  reminded  of  Elder  Skaats, 
in  “Vesty  of  the  Basins.”  At  the  Sunday  class  meeting  the 
question  was  propounded,  “How  can  we  escape  trouble?”  Said 
Elder  Skaats,  after  pondering  deeply,  “By  gum,  there  ain’t  no 
way.  I  have  been  married  twice,  and  I  know.” 

In  the  State  of  Ohio  they  are  obliged  by  the  constitution  to 
tax  their  own  power  to  borrow  money  for  the  benefit  of  the  state, 
and  of  municipalities,  with  the  result  that  they  must  pay  high 
rates  of  interest  to  foreign  lenders.  The  United  States  was 
saved  from  this  absurdity  by  a  wise  decision  of  the  Supreme 
Court.  (Weston  vs.  City  Council,  2  Peters,  469.)  Chief  Justice 
Marshall,  in  his  opinion,  said:  “The  tax  on  government  stock  is 
thought  by  this  court  to  be  a  tax  on  the  contract,  a  tax  on  the 
power  to  borrow  money  on  the  credit  of  the  United  States,  and 
consequently  to  be  repugnant  to  the  constitution.”  That  sound, 

logical  decision,  rendered  over  seventy  years  ago, 
Taxation  of  overthrows  every  argument  for  the  taxation  of 
Debts.  debts  of  all  kinds,  whether  state,  municipal,  or 

personal;  but  it  is  only  through  local  option 
that  we  are  likely  to  be  able  in  the  near  future  to  abolish  the 
taxation  of  debts  in  the  State  of  New  York,  or  in  most  of  the 
states  of  the  Union. 

In  the  State  of  New  York  the  rural  constituencies  still  cling 
to  the  taxation  of  debts  secured  by  mortgage  of  real  estate,  in 
spite  of  the  fact  that  the  taxation  of  mortgage  debts  is  about  the 
meanest  kind  of  double  taxation  there  is,  for  it  singles  out  a  man 
who  is  in  debt  to  impose  on  him  a  burden  without  resultant 
benefit  to  anyone.  If  by  stringent  provisions  of  the  law,  all 
mortgages  are  taxed,  there  is  a  certain  equality  in  the  iniquity; 


IO 


MUNICIPAL  TAXATION. 


but  the  general  rule  is  that  only  occasional  mortgages  are  placed 
on  the  assessment  roll.  In  the  State  of  New  York  the  interest 
rate  on  mortgages  is  increased  only  by  a  portion  of  the  tax,  and 
some  owners  of  mortgage  debts  who  escape  taxation  profit  by  a 
higher  interest  rate  than  they  would  otherwise  receive,  which  all 
mortgagors  must  pay;  while  some  mortgagees  who  are  too  honest 
or  too  ignorant  to  escape,  pay  the  full  tax  and  submit  perforce  to 
a  confiscation  of  their  property. 

The  impression  prevails  in  some  quarters  that  the  exemption 
of  mortgage  debts  from  taxation  would  be  a  special  benefit  to 
those  who  lend  money.  So  far  from  this  being  the  case  it  seems 
probable  that  many  who  lend  money  on  mortgage  security  and 
now  escape  taxation,  would  then  receive  a  smaller  net  return  by 
reason  of  the  greater  competition  in  the  lending  of  money.  The 
benefits  would  be  so  widely  diffused  that  all  classes  in  the  com¬ 
munity  would  share  in  them. 

The  slow  progress  we  are  making  in  reforming  methods  of 
taxation  is  due  far  more  to  ignorance  than  to  any  conflict  of 
interests.  Men  in  the  country  want  to  tax  the  rich  man,  and  go 
about  it  in  a  way  that  is  quite  unsuccessful,  and  recoils  with 
redoubled  force  upon  themselves.  Even  in  cities  any  demagogue 
who  for  the  moment  gets  the  ear  of  the  people  can  get  temporary 
popularity  for  schemes  to  tax  department  stores,  to  tax  reserves 
of  insurance  companies,  and  other  forms  of  wealth  or  agencies  of 
trade  or  commerce.  Every  tax  on  the  products  of  human  labor 
or  upon  the  processes  of  trade  falls  inevitably  upon  people  in 
proportion  as  they  consume;  that  is,  such  taxes  are  a  burden 
inversely  proportioned  to  the  family  income.  What  we  need  is 
smaller  constituencies  to  educate,  and  object  lessons  which  will 
educate  the  rest  of  the  people  by  sheer  compulsion. 

In  conclusion  I  will  sum  up  the  steps  which  lead  to  the 
shortest,  easiest  way  to  improve  our  local  tax  systems. 

Abolish  all  constitutional  restrictions  on  the  power  of  the 
legislature  to  regulate  taxation. 

Do  away  with  the  necessity  for  uniform  State  taxation  by 
apportioning  State  taxes  in  proportion  to  local  revenue. 

Give  to  every  county  the  right  within  the  general  laws  of 
the  state  to  exempt  from  taxation  any  class  of  property,  or 


LAWSON  PURDY. 


ii 


to  proportionately  reduce  the  assessment  of  any  class  of 
property. 

As  an  immediate  reform  assess  real  estate  annually,  state 
the  value  of  land  separately,  and  publish  the 
Conclusions.  assessment  rolls  in  a  convenient  form. 

With  local  option  every  community  will  be  a 
debating  society,  and  education  which  now  halts  and  stumbles  will 
advance  with  leaps  and  bounds.  People  who  now  fail  to  under¬ 
stand  that  taxation  is  of  importance  to  them  will  demand  enlight¬ 
enment.  The  progress  of  a  decade  will  exceed  all  the  progress 
of  the  past  one  hundred  years. 


1 2  098429050 


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CONTRIBUTORS 

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C.  Carter ,  Charles  J.  Bonaparte ,  Prof.  Frank  J.  Goodnow,  William  B. 
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Clement,  Laurence  Minot,  Prof.  John  A.  Fairlie,  Dr.  Paul  S.  Reinsch, 
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